When a foreign company is owned by a US person or persons, it’s a Controlled Foreign Corporation (CFC) for US tax purposes. Even if a CFC is operated abroad, some types of income will be taxable in the US as earned. … The most common type of Subpart F income is referred to as Foreign Base Company Income.
What is foreign base company income?
(1) In generalFor purposes of subsection (a)(2), the term “foreign base company sales income” means income (whether in the form of profits, commissions, fees, or otherwise) derived in connection with the purchase of personal property from a related person and its sale to any person, the sale of personal property to any …
What is foreign base company sales?
Section 954(d) defines foreign base company sales income as income arising from one of four types of transactions where property is manufactured by a CFC outside its country of organization and is sold or purchased for use outside such foreign country.
What is section 954?
954. Foreign Base Company Income. I.R.C. § 954(a) Foreign Base Company Income — For purposes of section 952(a)(2), the term “foreign base company income” means for any taxable year the sum of—
What is excluded from foreign personal holding company income?
Foreign personal holding company income shall not include rents or royalties that are derived in the active conduct of a trade or business and received from a person that is not a related person (as defined in section 954(d)(3)) with respect to the controlled foreign corporation.
Who Must File 8992?
Who Needs To File Form 8992. Any U.S. shareholder of one or more CFCs that must take into account its pro rata share of the “tested income” or “tested loss “of the CFC(s) in determining the U.S. shareholder’s GILTI inclusion, if any, under section 951A must file the Form 8992.
How does Subpart F recapture work?
Each recapture account of the controlled foreign corporation will be recharacterized, on a proportionate basis, as subpart F income in the same separate category (as defined in § 1.904-5(a)(4)(v)) as the recapture account to the extent that current year earnings and profits exceed subpart F income in a taxable year.
Can a foreign branch be a CFC?
A CFC is a separate non-US legal entity that operates in a foreign country with owners who reside in, or are citizens of, the United States. A DRE is a separate legal entity operating in a foreign jurisdiction that has made an election to be disregarded for US tax purposes.
Is interest income subpart F income?
As such, the provisions of Subpart F require a U.S. shareholder to include its pro-rata share of the CFC’s FPHCI in income currently. FPHCI generally includes a CFC’s income from dividends, interest, annuities, rents, royalties, and net gains on dispositions of property, and many more.
What is foreign personal holding company income?
Foreign personal holding company income (FPHCI) is defined for U.S. controlled foreign corporation rules and, with modifications, for U.S. foreign tax credit rules. It consists of interest, dividends, rents, royalties, gains on property producing FPHCI, and certain other items.
What is the high tax exception?
Definition of high tax – The GILTI high tax exception applies only if the CFC’s effective foreign rate on GILTI gross tested income exceeds 18.9% (i.e., more than 90% of the U.S. corporate income tax rate of 21%) and the U.S. shareholder elects for that year to exclude the high-taxed income.
What is the purpose of Gilti?
GILTI was intended to work as a backstop to the corporate tax system by subjecting some foreign earnings of U.S. companies to a minimum level of tax. Under current law, GILTI is defined as net foreign income after a deduction for 10 percent of the value of foreign tangible assets.
Can a foreign corporation be a personal holding company?
Foreign corp. will qualify as a foreign personal holding company (“FPHC”)(IRC 954(c)(1)) by investing only in passive income (generally consisting of dividends, capital gains, interest, rents, royalties, and annuities) producing assets; … Foreign corp.
Is foreign personal holding company income Subpart F?
FPHCI is a category of foreign base company income under subpart F income. FPHCI generally includes passive types of income such as interest, dividends, rents, royalties and sales of property held for investment.
What is the CFC look through rule?
6 The CFC Look-Through Rule allows a U.S. corporation to shift profits among its overseas subsidiaries without triggering the tax bill that would normally be due. American corporations owe U.S. taxes on all their profits, wherever earned in the world, less a credit for any foreign taxes paid.